Property Report : 913 S 115th Dr, Avondale, AZ

This tool is provided “As Is”. All information is believed to be accurate, but not guaranteed. It is intended for the purpose of illustrative projections. The information provided is not intended to replace or substitute any legal, accounting, investment, real estate, tax or other professional advice, consultation or service. The author of this tool is not responsible nor liable for any damages arising from the use of the tool.

Executive Summary

Property Description

Name

913 S 115th Dr, Avondale, AZ

Address

913 S 115th Dr, Avondale

Type

Singlefamily

Size

1495 SF

Rooms

4 bed. + 2 bath.

Purchase Price

$ 85,000

Rent

$ 950/month

Financing Overview

Purchase Price

$ 85,000

Down Payment

$ 17,000

Mortgage (yr @ 5.50%)

$ 68,000

Loan-to-Value (LTV)

80.00 %

Closing Costs

$ 2,000

Total Aquisition Cost

$ 89,000

Income, Expenses and Cash Flow (Year 1)

Gross Operating Income (GOI)

$ 10,830

Total Expenses

$ 3,258

Net Operating Income (NOI)

$ 7,572

Annual Debt Service

$ 0

Rehabilitaion

$ 0

Cash Flow Before Taxes (CFBT)

$ 7,572

Income Tax Liability

$ 0

Cash Flow After Taxes (CFAT)

$ 7,572

Financial Analysis

Holding period of 15 years and discount rate of 10% were used for calculation of NPV and IRR. The rest of the financial measures are for the 1st year only and therefore doesn’t provide such exact information.

Gross scheduled income (GSI)

represents the total of monthly rents for the particular property, including the potential rents from vacant units and uncollectable rents.

Vacancy and Credit Loss

represents the part of the potential rental income that is lost because of unoccupied units or uncollectable rent from tenants.

Gross Operating Income (GOI)

is the actual income which is expected to be collected in the property.

Operating Expenses

are expenses necessary for maintaining the property and ensuring its continued ability to produce income (doesn’t include mortgage payments or depreciation).

Net Operating Income (NOI)

is simply the gross operating income minus operating expenses.

Operating Ratios

Operating Expense Ratio

30.08 %

Break-Even Ratio

75.65 %

Cash Flow

represents all the inflows and outflows of cash for a certain property (including mortgage payments). We can calculate cash flow before taxes (CFBT) or cash flow after taxes (CFAT) which is CFBT minus any tax liability arising from the operation of the property.

Operating Expense Ratio

is the ratio of the operating expenses to the gross operating income (GOI).

Break-Even Ratio (BER)

is another benchmark used by mortgage lenders. It estimates how vulnerable is a certain property to defaulting on its mortgage if part of the rental income is declined. Most of the lenders are looking for BER of 85% or less.

Financial Effectiveness

Financial Measures

Net Present Value

$ 140,797

Internal Rate of Return

38.09 %

Profitability Index

7.70

House P/E Ratio

2.77

Annual Depreciation

$ 2,473

Holding period of 15 years and discount rate of 10% were used for calculation of NPV and IRR. The rest of the financial measures are for the 1st year only and therefore don’t provide such an exact information.

Net Present Value (NPV)

is probably the best measure of any investment thanks to its complexity. It takes into account all future cash flows including the selling price, and it converts all these amounts to their present values using discount rate required by the investor. Therefore in contrast from most of the measurements, NPV count fully with the time value of money. More information and example is on the blog.

Internal Rate of Return (IRR)

is a rate which an investment will return over the estimated period of ownership. It is in fact the discount rate that produces NPV of zero.

Profitability Index

is very similar to NPV. It also calculates with the present values of future cash flows and discount rate, therefore it takes in account the time value of money. Profitability index is a ratio which shows if the present value of the cash flows is worth the initial investment.

House P/E Ratio

is often used when measuring other investment tools, such as stocks. The Real Estate P/E ratio counts with the initial investment and annual net operating income.

Investment Return Ratios

Cash on Cash Return

36.06 %

Return on Investment

40.11 %

Return on Equity

36.06 %

Capitalization Rate

8.91 %

Gross Rental Yield

13.41 %

Gross Rent Multiplier

7.46

Cash on Cash Return

is in fact equity dividend rate. It is a ratio between annual cash flow before taxes and the total initial investment, expressed as a percentage. It is not an exact measurement of an investment, because it does not take in account the future value of money.

Return on Investment

is very similar to Cash on Cash Return, but also takes in account appreciation of the property in the first year.

Return on Equity

is one of the financial measures used as well on other types of investments. In Real Estate the return means cash flow after taxes (CFAT) and equity is the initial investment.

Gross Rental Yield

can be used for a particular property or also as a market indicator when using median values of rent and house prices. It is counted from gross scheduled rent and initial investment.

Capitalization Rate

is calculated as ratio of the net operating income and the value of the property. It is in fact the discount rate, used for discounting the future income to determine its present value.

Gross Rent Multiplier

is counted as a ratio of market value of the property and gross scheduled income.

Resale Analysis

Resale Price Evaluation Methods

The property is sold after 15 years.

Appreciation (1.00%)

$ 110,292

Cap Rate (8.91%) & NOI

$ 97,688

Gross Rent Multiplier

$ 97,705

Sale Proceeds

In the resale analysis we don’t count with taxes which might occur when selling the property. The tax laws for the resale are rather complex and subjected to frequent changes, and are different in every country.

Projected Selling Price

$ 110,292

Costs of Sale (7.00%)

$ 7,720

Sale Proceeds Before Tax

$ 102,572

Net Assets and Yield

Net Assets

Sale Proceeds Before Tax

$ 102,572

Down Payment

$ 17,000

Net Assets

$ 85,572

Yield

Annual Net Assets

$ 5,705

Average Cash Flow (After Taxes)

$ 8,126

Average Annual Yield

$ 13,831

Average Annual Return

16.27 %

Optimal Holding Period based on NPV

Holding Period

30 years

Max NPV

$ 172,201

Sensitivity Analysis

Loan to Value ratio

Your current LTV ratio is: 80.00%.

LTV

NPV

IRR

80.00 %

$ 140,797

38.09 %

0%

$ -3,694

9.48 %

10%

$ 401

10.06 %

20%

$ 4,496

10.73 %

30%

$ 8,591

11.52 %

40%

$ 12,686

12.49 %

50%

$ 16,781

13.67 %

60%

$ 20,876

15.23 %

70%

$ 24,971

17.33 %

80%

$ 29,066

20.61 %

90%

$ 33,161

26.66 %

This sensitivity analysis is using the configured holding period, the length and interest rate of the first mortgage and discount rate of 10%. It counts only with a conventional type of loan.

Mortgage Ammortization (Length)

Your current mortgage ammortization is years.

Years

NPV

IRR

$ 140,797

38.09 %

5

$ 5,221

11.04 %

10

$ 9,892

12.60 %

15

$ 13,593

14.50 %

20

$ 21,612

17.53 %

25

$ 26,193

19.38 %

30

$ 29,066

20.61 %

This sensitivity analysis is using the loan amount and interest rate of the first mortgage and discount rate of 10%. It counts only with a conventional type of loan.